Two years after headlines trumpeted the revenues New York would receive from legalized recreational marijuana, all the state has gotten are headaches.

Getting the state’s legal marijuana markets off the ground has been slowed by bureaucratic inertia and lawsuits, a fact not lost on Assemblyman Andrew Goodell, R-Jamestown, during this week’s debate over the 2023-24 state budget. Lawmakers weren’t debating marijuana revenue, but instead discussing legislation that would increase civil and tax penalties for the unlicensed and illicit sale of cannabis in New York. The 2022-23 state budget projected $40 million in revenue from licensing fees starting in late 2022 with tax revenue increasing in 2023 as storefront sales began in earnest. State tax revenues from marijuana sales are expected to reach $363 million a year by 2028.

“A few years ago we legalized recreational marijuana and we put the program in place and we were told this would be a huge revenue generator for the state of New York,” Goodell said. “Last year we put in $40 million for the Office of Cannabis Management. This budget adds another $62 million, so we have over $100 million we have invested so far in the Office of Cannabis Management. It is my understanding they have approved, so far, nine licenses. I understand there’s another 190 or so in the pipeline. In the meantime, just in New York City alone there’s a reported over 1,500 illegal cannabis selling places. … ”

The Office of Cannabis Management has awarded 165 licenses to date with more expected to be awarded at the next Cannabis Control Board meeting. There are eight dispensaries and one delivery operation in the state, including non-profits, entrepreneurs and a woman-owned business in Manhattan and Queens, entrepreneurs in Ithaca and Schenectady, a non-profit in Binghamton and the state’s first delivery business in Albany, with more dispensaries to open in the coming weeks and months. All regulated, licensed dispensaries must post the Dispensary Verification Tool near their main entrance.

Gov. Kathy Hochul expressed her own disappointment with the time it has taken to get legal markets off the ground in New York.

“No, I’m not happy at all,” she said in an interview Wednesday morning on WPIX11 in New York City. “But there were a lot of factors involved. The first day I became governor, there had been a logjam. Nothing had been done to get it going. It had been passed, but nothing was happening. So, I had to start from square one, just not that long ago, and to really try to build a whole ecosystem and find the locations and find the individuals who qualify and make sure they have the training and the skills to run one of these shops.”

The state budget approved this week did include additional enforcement authority for illegal cannabis shops that have popped up as the state’s legal market is established. Two such shops were shut down in Jamestown in November after the businesses refused to comply with a cease-and-desist order from the city. Those were the first such illegal shops to pop up in Jamestown, but illegal sales of cannabis has been a larger problem in bigger cities. Legislation included in the state budget empowers the Office of Cannabis Management and the Department of Taxation and Finance to curb the sale and/or gifting of cannabis from unlicensed storefronts and trucks across New York state. Specifically, this change to state law will allow the Office of Cannabis Management to assess civil penalties against unlicensed cannabis businesses that would undercut their efforts, with fines of up to $20,000 a day for the most egregious conduct. This legislation also makes it a crime to sell cannabis and cannabis products without a license. Additionally, this legislation will bolster the Office of Cannabis Management’s ability to conduct regulatory inspections of businesses selling cannabis and cannabis products, as well as businesses that sell and give away cannabis and cannabis products in indirect ways, such as so-called “sticker shops.” The Office of Cannabis Management will seize untested cannabis and cannabis products from unlicensed businesses, and will seek court-orders, closing orders, and removal of commercial tenants who are selling cannabis and cannabis products without the appropriate license.

The Department of Taxation and Finance will now be able to conduct regulatory inspections of businesses selling cannabis to determine if appropriate taxes have been paid and will be able to levy civil penalties in cases where appropriate taxes have not been paid. The legislation also establishes a new tax fraud crime for businesses that willfully fail to collect or remit required cannabis taxes, or knowingly possess for sale any cannabis on which tax was required to be paid but was not.

“And this is so frustrating,” Gov. Kathy Hochul said during an interview with WPIX11 in New York City on Wednesday. “There’s literally over a thousand of these places where they’re selling an illegal product, and the law didn’t have the authority for individuals to go in and seize it. So, we’ve now empowered the state Department of Taxation to go in and search, to seize, and to levy very hefty fines up to $100,000 to shut these down. Also, working with the Mayor to get the landlords to be penalized if they’re allowing these shops. These are illegal. The product is not safe. And people need to know that.”

Goodell said the illegal shops have sprung up because people don’t want to pay the state’s high taxes to operate a legal shop. The Jamestown Republican also said the state has had trouble finding enough people with felony convictions who want to operate a legal marijuana dispensary under the state’s Marijuana Regulation and Taxation Act. State law incentivizes participation in the new industry for individuals impacted by cannabis prohibition, automatically expunges an individual’s past marijuana convictions, and invests 40% of the adult use cannabis tax revenue toward rebuilding communities the state says were harmed by past drug enforcement policies.

Crystal Peoples-Stokes, D-Buffalo and Assembly majority leader, defended the Office of Cannabis Management, noting the office oversees the farmers growing cannabis, is working to help open dispensaries, runs labs and works with processors. She also blamed a March lawsuit that included some of New York’s medical marijuana companies who sued state cannabis regulators in an effort to open up licensing to all retail dispensary applicants immediately. The lawsuit claimed state cannabis regulators exceeded their legal authority when they opened the initial application pool in August only to people with past pot convictions or their relatives, instead to everyone. That lawsuit has been resolved in the state’s favor.

“So to assume as Mr. Goodell has said incorrectly that this entire staff is for nine licensed people, it’s unfortunate he would think that,” she said. “The other piece of this that I think people should be clear about is if there had not been a lawsuit challenging the fact that New York wants to do something iconic with this legislation unlike any other state in the nation, if it had not been for that lawsuit there could have been a lot more than nine dispensaries. Because that lawsuit has been solved by our court system here in the state of New York in conjunction with our Attorney General’s office, those numbers will go up very rapidly. So I guess the next problem that people will have is that the original legislation cleared the records of many of these people who are now in a position to be entrepreneurs. What’s wrong with that? You complain if they need you to give them food stamps. You complain if they need you to help pay their rent. Now they’re willing to go out and work and take care of themselves and their family and you still complain.”